Can I contribute to a 401(k) and/or 403(b) plan while in Chapter 13 bankruptcy?

[luadams]

Hello everyone and thanks for any advice you in can give me. I haven't filed yet, but seriously considering it.

I am not eligible for Chapter 7 due to income. I have taken $20,000 from my 457(b) and a helpful person on this board has informed me that I could pay back that loan in the bankruptcy, and explained the difference from my plans at work and an IRA -- thanks HHM.

I do not have any IRA's, just my 457(b) and 403(b). My husband has a 401(k), a 403(b) and a 457(b). It appears I can repay the loan on my 457(b) while in Chapter 13 bankruptcy which is welcome news!

If I file Chapter 13, can we still contribute to the 403(b)'s and the 401(k)? I know they cannot be seized in the bankruptcy, but can I have contributions deducted from my check like I did before? Is there a cap?

[MommyMc]

Hi!
My husband has a 401k, he's still able to contribute to it while we are in the 13. There is a limit though, each state may have different requirements. I believe he is able to contribute up to 5%.

Good luck to you!

[luadams]

Thanks, I'm still learning about bankruptcy. It's a little scary but I don't see as we have many options.

[woeisme]

My trustee allowed us to keep the contributions to my 403b, but I've heard others couldn't. So it's all dependent on your trustee's local practices. Good luck!

[luadams]

5% would be good enough I guess. But GAWD I wish they'd let us contribute more. We're in our fifties. Not much time left to save up for retirement.

We lost our shirts in this recession mess.

[justbroke]

5% would be good enough I guess. But GAWD I wish they'd let us contribute more. We're in our fifties. Not much time left to save up for retirement. .

You can always put in your Plan for what you have today. Say it's 10% that you've been contributing since you're in your twilight years (I totally made that up). If the Trustee objects, you can back it down. However, given that you're closer to retirement and the totality of your circumstances, you may be able to still get a workable and approved plan. Just depends if you want to fight.

The general consensus seems to believe that contributions up to the legal maximum limit and/or the company's matching percentage, is okay.

[treehugger1]

Generally, when one contributes to a 457 and 403(b) it's because they already have a pension plan through an employer. Contributions to both 457 and 403(b) are limited at about $30K for both + there is the "catch-up" allowed. I doubt a trustee in my state will allow this max contribution if you already have a public pension plan. Is this your case?

It sounds asif you are in the same predicament as me. I'm in my 50's, and I defaulted on almost every unsecured debt obligation a couple of years ago. I could retire 2 years from this July with nearly full pension benefits. In my case, I have no assets and didn't see any reason to file for 13. I have been sued and have lived through several 25% wage garnishments. On the other hand, I continue to pour money into a 457 and I also have a 403(b.)

It can be a tough call when you are in your 50's, employed with reasonable wages, and have your sights on retirement. If you have very few assets and can afford 25% garnishment, you might ride things out for a bit. I say this because my payments to the local trustee here would have consumed about 60% of my disposable income. 25% garnishment didn't seem so bad. I opted to continue to put money into my 457, deal with my student loans, and accept wage garnishment. Mathematically, I'm way ahead in terms of my future. My credit, however, is completely trashed. Yet, if I needed to "borrow" money in the near future to buy a car or make a down-payment on a home, both a 457 and 403(b) are available to borrow from. I become my own creditor.

Could you file a chapter 7 three to five years from now?

Many months ago I posted a message related to those of us baby-boomers in our fifties who will need to make some hard decisions related to filing a BK 13. The means test, large unsecured debts, and 50-something folks have yet to exert their impact on BK world. But, the day is coming.

Take some time, project out future costs (garnishment vs BK 13 payments) and future revenue (wages until you retire and retirement benefits later) and your future need for credit.

You might sit down and discuss your situation with a financial advisor or CPA. I found this quite helpful in my case. Five years of BK 13 (100% payment plan) and no allowances to continue contributing to the 457 turned out to be a bad move for me. I also have student loan payments that I am now letting default and move toward 15% administrative wage garnishment. Through default and SL garnishment, I can repay my student loans, contribute to a both a 457 and 403(b), and have only a 10% wage garnishment amount open to other judgment creditors/CA's. No brainer for me. I do have to deal with some collection agencies and collection attorneys now and then, but I'm a grownup and this has not been too difficult to deal with. Each case is different. Assets? Retirement? Student loans (not allowed in payback plan in my district,) etc.

Do you remember the old knight guarding the Cup of Christ in the Indiana Jones movie? "Choose your cup wisely." Choosing to stop paying my unsecured debt was purely a sound personal financial move in terms of the next 5 - 10 years.

Best to you!

[BnkrptcyLwyr]

The general consensus seems to believe that contributions up to the legal maximum limit and/or the company's matching percentage, is okay.

And there is case law to support you. In re Johnson, 346 B.R. 256 (Bankr. S.D. Ga., 2006)

[justbroke]

And there is case law to support you. In re Johnson, 346 B.R. 256 (Bankr. S.D. Ga., 2006)

Thank you for the Cite... I don't have Bankruptcy Review, so can you provide a summary from the Court's conclusion? I'd like to store it away for later.

[luadams]

Hi everyone,

Still out there getting as much information as I can and I'll share whatever I think might be useful to someone else.

Went to see a lawyer today and I did find out that it is possible to pay back a loan taken out on your 457(b). Whatever was already coming out of your check to pay back that loan stays just as it is if you file. So that's somewhat of a relief.

I'm not sure, but the lawyer seemed to intimate that you can pay whatever you want into your employment related plans, if you have any left over after making your bankruptcy payment. Which I'm guessing won't be much, if any.

Thanks all for your helpful comments. This is so hard.

[catleg]

[optimistic1]

[justbroke]

They can't. What they could do and can do, is file a "bad faith" objection under the "totality of circumstances"!!! very effective. Besides, even the IRS has a limit on how much pre-tax income can go into a retirement account per year. This is another hard ceiling on contributions.

[catleg]

They can't. What they could do and can do, is file a "bad faith" objection under the "totality of circumstances"!!! very effective. Besides, even the IRS has a limit on how much pre-tax income can go into a retirement account per year. This is another hard ceiling on contributions.

I think this is a case where somebody has to "take one for the team" and invest the legal fees to appeal it up as far as necessary.

Besides, it is true that there are limits, both the IRS and the plans themselves will cut you off at some point.

That bad faith thing is very ... unkind. :-)

[justbroke]

I think this is a case where somebody has to "take one for the team" and invest the legal fees to appeal it up as far as necessary.

They have, and they have lost. The "bad faith" argument has been there since pre-BAPCPA and Congress never touched that part of the Bankruptcy Code when they created the BAPCPA of 2005.

From all my reading, "totality of circumstances" (bad faith/good faith) is the only non-mechanical aspect of the BAPCPA-enhanced Bankruptcy Code.

Here's an example of what they left in the Bankruptcy Code...

That just leaves all the room for "interpretation" of what "good faith" is and it's undefined in the Code.

But, I hear ya Catleg! And I agree with the spirit of what you're saying.